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Bad News Brings Bears to Brazilian Market

Latin American markets were mixed, hindered by declines in U.S. equities. Locally, Brazil’s market continued south, while Mexican and Argentine shares rose.

In the U.S., gross domestic product rose 3.1% in the fourth quarter, down from third-quarter growth of 4.0%. Also, investors remained cautious in anticipation of the weekend’s election in Iraq.


Brazil’s benchmark Bovespa Index slid 61.61 points, or 0.26%, while Mexico’s benchmark Bolsa Index advanced 54.13 points, or 0.42%. Argentina’s Merval Index firmed 3.49 points, or 0.25%.


Brazilian shares deepened their losses, following the publication yesterday of central bank minutes from last week’s rate-setting meeting indicating further monetary policy tightening.


Brazil’s central bank published the minutes of last week’s rate-setting meeting, saying it is prepared to hike the benchmark interest rate further from the current level of 18.25% to bring stubborn inflation expectations in line with its 2005 targets.


Market watchers fear such moves could threaten an economic recovery underway in Brazil.


That release overshadowed news Brazil’s government posted a consolidated public sector primary budget surplus of 81 billion reais in 2004, or the equivalent of 4.61% of gross domestic product, beating targets agreed upon with the International Monetary Fund.


The government uses the surplus to pay down debt, which must be reduced in order to ease domestic lending rates.


Also, Sao Paulo’s Fipe consumer price index rose 0.72% in the four weeks ended January 23 from the 0.67% advance in the four weeks ended January 15, as consumer inflation in Brazil’s largest city reached its highest level since September 2004.


The latest result was near the high end of analyst forecasts, which ranged from 0.62% to 0.73%.


Turning to corporate news, Brazil’s two biggest airlines, Varig and TAM Linhas Aereas SA, have reached an agreement with the country’s antitrust authority, or Cade, to end their code-sharing agreement, a Cade spokeswoman said late Thursday. Varig receipts descended sharply on the session.


Elsewhere, Mexican shares rose, lifted by mostly positive fourth-quarter earnings news.


America Movil, the leading wireless service provider in Latin America, said it gained a record 7 million subscribers in the fourth quarter, to end the year with 61.1 million.


However, the cost of boosting its roster ate into America Movil’s net profits, which tumbled to 1.64 billion pesos from 5.60 billion pesos in the corresponding period the year before.


Still, full-year 2004 net earnings added 4.4% to 16.51 billion pesos. In turn, a major investment house upped its 12-month price target of the stock to US$62 from US$52, saying America Movil’s quarterly earnings and revenue topped estimates.


Also, financial group Banorte said its fourth-quarter net earnings climbed 53% to 915 million pesos from the year prior. That profit lifted the company’s full-year profit 12% to 2.62 billion pesos.


In other news, Mexico’s central bank tightened monetary policy for the seventh straight month, continuing the battle that began in 2004 against inflation.


The Bank of Mexico increased its money market liquidity restriction, or “corto,” to 75 million pesos daily from 69 million pesos.


Mexican policy makers signaled that they will remain vigilant in their attempts to prevent high inflation expectations from contaminating wage negotiations and forming more long-term price pressures.


Separately, Argentine stocks rose more modestly, as buyers took a more relaxed approach following a two-day surge.


After the Merval Index of large-cap shares had been confined to tight trading ranges for nearly two weeks, Argentine equities leapt 5.3% on Wednesday and Thursday amid signs of progress on public services reform and early anticipation regarding announcements on the government’s US$ 103 billion debt swap.


Analysts noted that the lack of profit taking at the week’s end was a positive sign, as the market seemed to be validating its current level.


Thomson Financial Corporate Group
www.thomsonfinancial.com


PRNewswire

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